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$10.52 0.91 (9.47%)
7/23/2008 4:00 PM

Sun Microsystems, Inc. (JAVA)

CAPS Rating:
***

The Company provides network computing infrastructure solutions that include Computer Systems, Data Management, Support Services and Client Solutions and Educational Services.

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Avatar NetscribeComptrs (91.34) Submitted: 1/04/07 8:19 AM : Underperform Start Price: $22.16 JAVA Score: 43.31

Sun Microsystems (SUN) is a producer of servers and storage products and provides computer services. SUN’s products include network servers, workstations, storage systems, and operating software. The company markets its products under Solaris, Sun Ray, and Java brand names.

The company in the past few years was constantly losing market share against industry giants, but recently it has stabilized and is seeing improvement. However, the pace seems to be slow. Further, SUN is expanding its focus and is increasing its exposure to software and storage through various acquisitions.

The fortunes of the company are tied to the mature and price-competitive high-end server market, which contributes the largest to its top-line. Further, there is intense competition as SUN competes with IBM and Dell who are fearsome in the high-end and low-end server market. Additionally, the company’s open-source strategy is a huge question mark. This is because open-source Linux enjoys a big head start and has a larger developer community and a stronger presence in enterprise data centers, as against SUN.

The company has recently announced various cost cutting measures in a move to increase its bottom-line. This includes shaving off a part of its workforce and closing facilities. This move will bring down its costs significantly. But, it will also pose problems for its management, as they will be left with fewer resources and a bit demoralized staff to work with.

On the flip side, SUN is expected to benefit from a $2.8 billion acquisition of StorageTek, a provider of data storage hardware where the company has petite presence. It is believed that this market is growing and StorageTek’s 1,000 strong sales force and esteemed technology will allow it to keep a hold over the market share. However, a few positives will not protect the stock and the negatives will head it towards a southward journey.

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Avatar NetscribeComptrs (91.34) Submitted: 5/03/07 8:41 AM

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Total revenues for the latest quarter increased a modest 3% to $3.28 billion. Microelectronics is the newest group formed to pursue intellectual property arrangements for silicon innovations. A strategic alliance has been formed with Intel centered on the endorsement of the Solaris operating system and delivers a new line of systems based on Xeon processors.

The strategy of Sun in its latest avatar has been to open source its Java and Solaris operating system to gain market share. The following months would see lot of activities with the launch of video delivery platform, new blades known as constellation and launch of JavaOne. Recently private equity firm Kohlberg Roberts and Co invested around $700 million through convertible senior notes that would be used for strategic growth in the form of acquisitions. The deal has bought life back to Sun and has improved its financial health with excess cash.

The management expects the next quarter to be seasonally challenging and has been facing slow growth in the U.S and the U.K market, along with softening of orders in the month of March. Though it is not losing business to competitors, the company has delayed its dispatches, adding to its woes. . Large portion of its operating expenses are denominated in local currencies and is facing negative impact from currency changes. With the dollar weakening against major currencies like Pound, Euro and Yen it is loosing approximately $0.01 per share. Sun lacks the strength to compete in the long term with the likes of IBM, HP and Dell. Moreover operating cost is skyrocketing for the company and does not have products to offer in the low end. Summarizing the above mentioned facts it looks sensible to avoid the stock for 2007.

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